Workers at a solar PV cell factory in Jiangsu province. Solar PV cells are considered vital to address the nation's energy needs. [CFP]

China is aiming for an installed solar power capacity of 2 gW by 2011, nearly a 15-fold jump from the 140 mW capacity it had at the end of last year, according to people familiar with the matter.

The National Energy Administration has decided to expand the country's solar power capacity to 2 gW in the next two years, with a subsidized price for solar power of 1.09 yuan per kWh, the source said.

China is trying to catch up in a global race to find alternatives to fossil fuels. The country, which revised its 2020 target for solar power capacity from 1.8 gW to 20 gW in its new energy stimulus plan, added 40 mW in new capacity last year.

Six regions and provinces in Northwest China are the most suited for installing solar PV stations in terms of sunshine days. These are Inner Mongolia, Xinjiang Uygur autonomous region, Gansu, Ningxia, Qinghai and Shaanxi, said Shen Yanbo, an expert from the National Climate Center.

The government's new policy would come as a boost for solar energy in the domestic market and create greater opportunities for companies involved in the entire solar supply chain, said Zhang Shuai, a new energy analyst with Sinolink Securities.

Top panel-makers, including Suntech, Yingli Green Energy and LDK Solar, are expected to benefit from the revised goal.

The solar industry has been hit hard since the end of last year due to freezing credit resulting from the financial crisis and an oversupply of solar panels that have cut prices sharply.

China is considering enhancing incentives at a time when European countries such as Germany and Spain, the largest solar markets, are pulling back on incentives, thereby slowing the market.

Although China has been the largest solar panels supplier in the last two years, it played an insignificant role in the domestic solar photovoltaic (PV) market. But new policies are spurring a change this year.

The government in March approved a subsidy of 20 yuan per watt for solar PV systems larger than 50 kW fixed on building roofs.

The subsidy, which could cover half the cost of installing the system, was popular among developers, attracting applications equivalent to the building of 1 gW of solar power, Reuters reported earlier.

For ground-mounted projects, the government is paying a feed-in tariff for the electricity generated, instead of a subsidy based on the projects' capacity.

It has set a price of 1.09 yuan per kWh for a 10-mW solar PV power plant in Dunhuang, nearly three times the rate paid by coal-fired power plants.

"The subsidized price of 1.09 yuan is not ideal for solar panel players to make money from these projects," said Li Junfeng, deputy director of the Energy Research institute under the National Development and Reform Commission. "The profitable price would be between 1.3 yuan per kWh and 1.5 yuan per kWh, depending on different producers."

He said the government still needed to adjust the feed-in tariff if the domestic PV market had to develop faster.

Besides the subsidy component, some Chinese solar panel makers would be able to make money when the production cost comes down to 1 yuan per kWh within the next two years, company insiders said.